J. Robert McClure: Proposed program can help property insurance

January 7, 2014|By J. Robert McClure

State officials know getting blamed for property insurance problems ranks high with tax hikes on the politically toxic issues list. So it's tempting for lawmakers and regulators to avoid tougher reforms in an insurance marketplace that, ironically, also carry the risk of a huge tax hike.

Adding to this political inertia, Florida has gone through eight straight hurricane seasons without a major storm, lessening the sense of urgency felt in the wake of the 2004-05 hurricanes that devastated Florida with $30 billion in insured damages.

Florida's property insurance marketplace became a mess. The state-run Citizens Property Insurance — ostensibly Florida's "insurer of last resort" — became the largest property insurer, placing a Cat 5 financial risk on the backs of all Floridians.

Problem: If a big storm struck a major urban area — or if a series of storms crisscrossed the state — Citizens and the state's catastrophe fund wouldn't have enough money to pay all the claims. To get the money, Florida would need to go hat-in-hand to Wall Street and borrow record amounts of money.

State law would require a tax on every property and auto insurance policy. In such a scenario, elected officials would refuse to impose the fiscally prudent rate hikes necessary and the state sponsored insurance hole would be dug deeper.

Granted, some progress has been made. Citizens is being downsized; the Cat Fund is gradually being right-sized. Yet, enormous fiscal and political risks persist, and elected officials need to act even faster.

The James Madison Institute and R Street Institute of Washington, D.C. recently released a backgrounder titled "Ten Reforms to Fix Florida's Property Insurance Marketplace – Without Raising Rates." The full report — posted on JMI's website, http://www.jamesmadison.org — calls for more transparency in the insurance marketplace, more safeguards against conflicts of interest, and legal reforms to prevent predatory law firms from driving up insurance rates by filing bogus claims.